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The Spoon

Daily news and analysis about the food tech revolution

Venture Capital

GFI: Fermentation Fuels Q3 2024 Alt-Protein Investments, While Cultivated Meat Lags

This week, the Good Food Institute released its quarterly alt-protein investment update, so I thought it’d be a good time to check in and see which way things are trending.

At this point it’s well-known that the alt-protein investment climate has had a couple tough years, and the latest numbers show things remain tough.

According to data shared by GFI, alternative protein companies raised $233 million in Q3 2024—a 37% decrease from Q2, but a 25% increase year-over-year. The drop from Q2 is notable, exceeding the 20% decline across the broader venture capital market. However, the 25% year-over-year growth in Q3 is a potential bright spot and could indicate that the second half of 2023 marked the low point for the overall market.

Source: GFI

GFI also broke things down by sub-sector, and it’s clear that fermentation technologies are where investors are placing their bets:

  • Plant-based proteins raised $56 million in Q3, bringing the year-to-date total to $194 million.
  • Fermentation technologies, which saw the largest share of investment, raised $174 million in Q3, with $572 million invested year-to-date.
  • Cultivated meat and seafood companies raised $3 million in Q3, reaching $133 million year-to-date.

It’s important to note that the overall alt-protein investment numbers can be heavily influenced by a few large deals. For example, Q2 2024 saw $118 million invested in the cultivated meat sector, largely driven by a $55 million Series B investment in Prolific Machines, a cultivated meat infrastructure company, and a $42 million investment in Dutch cultivated meat pioneer Mosa Meat. These larger deals led to an average deal size of $10 million for cultivated meat in Q2, compared to a paltry $396,000 in Q3 2024.

Similarly, Q3’s fermentation investment numbers were significantly impacted by two major deals: a $61 million investment in fermentation startup Formo for its Koji cheese products and a $45 million Series B for precision fermentation startup Helaina, focused on its human lactoferrin product.

GFI notes that lower interest rates moving forward could provide a boost to the alt-protein space, but cautions that the cost of capital remains relatively high. They continue to advocate for alt-protein startups to explore non-traditional funding sources, such as government-backed loans and programs.

Looking ahead, I predict that fermentation-based startups will remain the most attractive area for investors in the coming year. Investment in cultivated meat startups will likely focus on infrastructure players with game-changing technology, like Prolific Machines. Meanwhile, many cultivated meat startups that raised significant rounds in the past few years to scale manufacturing have put those plans on hold as they work to extend their funding runways during this ongoing VC winter.

According to GFI, the alt-protein space has seen a cumulative $16.3 billion invested since 2015, a decent number overall but still relatively small compared to other sustainability focused-sectors. To give you an idea of just how small the space is compared to other sectors, the solar industry raised $6.9 billion in venture capital in 2023 alone, and that number jumps to $34.3 billion when factoring in corporate funding.

One thing that the space needs to attract bigger dollars is a more attractive exit outlook. Overall, the exits in alt-protein has been disappointing, as have the results of those companies that have gone public. Until we see a big investor success story in this space, the dollars may remain relatively small compared to other markets.

Pitchbook: Food Tech Funding Dropped Almost 60% in 2023

The food tech sector navigated rough waters in 2023, as venture capital funding experienced a significant downturn for the second consecutive year. According to Pitchbook’s Q4 2023 report, food tech funding saw a steep drop of 59% in annual VC deal values, plummeting to $9.2 billion from $22.5 billion in 2022. This contraction is in step with an overall deceleration in venture investing due to a combination of macroeconomic challenges and sector-specific headwinds.

Alex Frederick, the report’s author, spoke with The Spoon about some of the factors driving the decline.

“We’re seeing high-interest rates and a closed IPO window continuing to constrain VC activity,” Frederick explains. “Additionally, annual food price inflation, although slowing to 2.2% this year, has cumulatively pushed food prices to record highs for consumers. This presents a significant challenge for innovative startup CPG products attempting to enter the market at a premium.”

According to Frederick, the deceleration is particularly pronounced in specific subsectors of food tech. “The whole e-commerce space, including online grocery and restaurant delivery, is down 67% in terms of dollars in just one year, and 87% since the peak in 2021,” Frederick said. “This major deceleration is largely due to an investor shift from growth to profitability and positive unit economics.”

Investment in technology for restaurants and retail has also faced a sharp decline, dropping 71-72% over the past year and 85% over the past two years. Similarly, the alternative protein space, once the darling of food tech, has seen a deceleration, with investors increasingly focusing on companies that can demonstrate a path to profitability.

I asked Frederick about picks and shovels type of investments, and he said while the numbers don’t necessarily show up in the aggregate funding, he is seeing some increased activity by companies who are building out inputs and production for alternative proteins, including a focus on alternatives to growth serum and building fermentation bioreactor infrastructure.

“There’s just more attention, a growth of stakeholders, and a focus on building out all of the inputs and infrastructure they would need to grow that industry.”

You can see my full interview with Alex below and can download an excerpt of the report on the Pitchbook website.

The Spoon Talks With Pitchbook About Q4 2023 Food Tech Investment Landscape

Pitchbook: Food Tech VC Deals Inch Up After Receding For the Past Two Years

Like many segments across the venture investment landscape, the food tech sector has seen a significant pullback in investment over the past couple of years. However, according to a new report from Pitchbook, there are early signs that investors who have kept on the sidelines may slowly be pushing their chips back on the table.

According to Pitchbook’s Q2 2023 food tech investment segment analysis, total food tech deals for Q2 increased over the previous quarter by 13.3% to 268 total deals, up from 197 deals in the first quarter of 2023. Total deal value was down just a smidge, dropping to $2.2 billion in Q2 2023 from $2.3 billion in the first quarter.

The Pitchbook report states that the uptick in total deals in Q2 could be an early sign of a potential return of investors to the sector. According to the report, there are indicators that investors have “significant dry powder reserves and may be slowly returning from the sidelines to resume deploying capital.”

Looking at how the Pitchbook analysis breaks down the food tech sector by segment, the biggest overall sector in Q2 was food e-commerce, which accounted for over $1 billion in Q2. According to Pitchbook, food tech e-commerce deal values were driven by late-stage investment in companies like Getir, which nabbed a $475 deal in 1H 2023. Other big deals of note in the first half included a $230 million deal in meal replacement startup Yfood (a deal which had Nestle acquiring a majority ownership stake in the company) and a $172M series C investment in alt protein startup Meati.

Speaking of alt protein, the Pitchbook analysis is somewhat bullish on the sector, predicting that the global alt protein market will grow from $76 billion in 2023 to $423 billion in 2033, a compound annual growth rate of 19%.

If you want to read the Pitchbook report, you can download a copy here.

Incredo Sugar: Redefining Sweetness, Delighting Taste Buds, and Nurturing Health

The intake of excess sugar in our diets is an epidemic that has no season or one that lies stealthily in refrigerators or airplane tray tables. Healthy Food America notes that the United States leads the world in the consumption of added sugars and ranks third in the world in sales of sugary drinks. All this sugar has consequences – the U.S. has one of the highest overall obesity rates in the world and the highest rate of childhood obesity, not to mention heart disease and diabetes.

Several attempts to replace sugar with artificial sweeteners such as Aspartame and Saccharin have been mildly effective, asking consumers to give up taste to unsweetened diets. Natural options such as agave, monk fruit, and Stevia round out this list focusing on substitution rather than the complex approach of manipulating a sugar molecule. Enter Incredo (formerly DouxMatok), an Israeli company with an idea that maximizes the properties of sugar but limits its impact on the body.

Born out of necessity in World War II, the story is a part of history led by Prof. Avraham Baniel, a renowned chemist in Israel. The best retelling of the journey from concept to realization can be found in an episode of the Netflix series “Explained” (Season Three, Episode 1). In short, Prof. Beniel discovered that by adding starch to sugar crystals, consumers could use less sugar with the same taste. Fast forward to 2001 and then to 2013 and 2014, and Baniel brought his earlier discovery back to life with a significant improvement. Using a small “carrier” with the active ingredient (sugar) as part of the refinery process results in a cluster of sugars rather than a new molecule. These clusters will then linger on the tongue, optimizing flavor delivery.

Incredo CEO Ari Melamud

The Israeli food tech startup recently announced the close of its latest (and most significant) fundraising round to date, coinciding with the unveiling of a new company name, Incredo LTD, based on the company’s signature product Incredo® Sugar. In an interview with The Spoon, company CEO Ari Melamud discussed how Incredo is poised to create a healthier sugary experience.

Using a chocolate bar with 13 grams of sugar as an example, Melamud said Incredo could reduce the sugar content by 30 percent to 50%, which could be great news for those with diabetes and other related conditions.

“It changes from one application to another and even from one recipe to another because every recipe is very different depending on the other ingredients inside,” Melamud said. “So, on average, we can say we can drop 40%. And again, our technology is not a diabetes solution. But we’re a mass market solution to help everybody prevent becoming diabetic in many ways. Because if you look at the numbers and statistics on a global average, we’re consuming about three or four times more sugar than recommended. If we can drop it by 50%, 40 to 50%, that’s a big difference for a lot of people preventing people from becoming diabetic actually. This is our main mission and our main tasks.”

Even in its earliest stage, DouxMatok has developed significant commercial partnerships with Better Nutritionals, a supplement manufacturer; Batory Foods, a specialty ingredient company; and Blommer Chocolate Company, North America’s largest cocoa processor and ingredient chocolate supplier.

If the company’s Incredo Sugar has one Achilles heel, it will not work with liquid (preventing use in beverages) because it quickly dissolves, bypassing the product’s lingering taste experience. After hearing DouxMatok’s story, the issues with liquid are small hurdles that could be rapidly overcome.

Food Tech Funding Drops 21.5% in Q2, But Alt-Protein Proves Resilient With Only 9% Decline

According to a new report from Pitchbook, total food tech venture funding declined by over one-fifth in total deal value in the second quarter of 2022, dropping from $6.9 billion in Q1 2022 to $5.6 billion in Q2 2022.

The drop in deal value corresponds with a decrease in the total number of deals, which declined in the second quarter by 23%, going from 359 funding deals in Q1 2022 to 275 deals completed in Q2 2022.

Q2’s decline marks the fourth straight quarter in which food tech funding has dropped. Total investment is down 45% ($4.5 billion) from the sector’s high water mark of $10.1 billion reached in the first quarter of 2021.

Food tech isn’t alone in its pullback. The sector’s quarter-over-quarter decline in funding is just slightly less in relative terms than the overall venture capital market, which dropped 23% from the previous quarter. At $5.6 billion in total funding in Q2 2022, food tech represented about 5.2% of total venture capital in the quarter, compared to 7.6% of total funding in the first quarter of 2021 when food tech funding had reached its high point.

As usual, the total funding for the sector was dominated by a handful of mega-rounds, including Wonder’s $350 million series B. Other big rounds include Upside’s $400 million series C and Gopuff’s $1.5 billion, which Pitchbook says closed on May 18 (though word of the forthcoming round leaked late last year).

Gopuff’s funding comes at a time when many investors and industry watchers are reevaluating the business model for the ultra-fast grocery business, a sector responsible for many of the mega-rounds that pumped up the food tech sector’s total deal value over the past year and a half. Gopuff, like many of its peers, announced layoffs over the past few months and that they would shut down a good chunk of its distribution network. Essentially everyone in the ultra-fast-grocery is attempting to slash costs as they look to extend runways as they recognize they’ve seen their last big funding round for a while.

So will food tech investment continue to decline? My guess is yes, at least in the near term, in large part due to recessionary fears, the continued tightening of monetary policy in the US, and broader geopolitical uncertainty. The absence of future investment into ultra-fast grocery may also lead to near-term drops compared to previous quarters over the next year, but the good news is that as the inflated valuations from the ultra-fast grocery recede into the rearview mirror, overall declines quarter over quarter should decelerate.

One particular sector I am keeping an eye on is the alternative protein segment, which has held up better than the overall food tech space. According to the Good Food Institute, alt-protein funding declined only 9% quarter over quarter, a much smaller decline than both the broader food tech industry and the overall venture market. Alt-protein has seen its share of late stage high-value deals (like Upside, Impossible, Eat Just, etc), something which looks to have continued into the most recent quarter. It’s also seen continued investment across all three major sub-segments (plant-based, precision fermentation, and cultivated/cell-based), which may have contributed to its relative resilience. If any of the three might be susceptible to potential pullback, it’s plant-based meat, a market that is proving to be both crowded and, in some cases, one in which some brands struggle to bring back repeat customers.

Long-term, I expect investors in future food to continue to be bullish, especially as we start to see government money start to enter the alt-protein market. Globally, governments are beginning to view future food as an important part of national security strategy, and while the US is lagging a bit in that regard – food was not a major part of the recent climate change-centric Inflation Reduction bill that just passed – we are beginning to see state governments start to invest in the space. While the alt-protein space has lacked the same type of government taxpayer support as that of alternative energy, a moderate amount of future growth in government support should catalyze future private investment in the space.

From Robotics to Alt Protein, Layoffs and Shutdowns Have Begun to Hit Food Tech

What a difference a year can make.

Last year, it seemed a day didn’t go by without word of a big new funding round in food tech. Alt proteins, restaurant tech, food robotics, food waste, and other sectors benefited from the combination of low-cost capital and a newfound urgency among investors to reinvent our antiquated food system post-pandemic.

But as the economic outlook darkens and investor eagerness gives way to caution, some startups and publicly traded companies in food tech find themselves in situations where they need to pare back their ambitions, tighten their belts to extend their capital runways and, in some cases, shut down altogether.

Here are some examples of bad news from the last couple of weeks:

Ghost Kitchens & Restaurant Tech: NextBite, one of the high-flyers in the virtual restaurant and ghost kitchen space, has laid off employees for the second time this year. The news comes a couple of months after Reef laid off 5% of its workforce. Restaurant payments app startup Sunday is shutting down operations in a number of its markets and laying off a large percentage of its team.

Food-Making Robots: Doordash, the publicly traded food delivery startup, is shutting down Chowbotics, the food robotics startup it acquired last year. The shutdown of the salad-making robot kiosk comes just a couple of months after we learned that Basil Street Robotics, a maker of pizza-making robotic kiosks, had put its assets up for sale.

Delivery Bots: Speaking of robots, the original sidewalk delivery robot startup Starship (which we started covering back in 2016), has recently laid off 11% of its workforce.

Alt-Protein: Last week, we learned that Motif Foodworks, the well-funded alt-protein ingredient spinout of Ginkgo Bioworks, has laid off an undisclosed number of employees.

Fast-Grocery: The ultra-fast grocery business has fallen further from its 2020-2021 highs than perhaps any other sector, as investors realize how much more capital is needed to build out their hyper-local dark store and delivery networks. Over the past few months, we’ve seen startups Buyk and Fridge No More shut down and others, like JOKR and Gorillas, pare back and exit some markets to preserve capital.

While some sectors (like alt protein) seem less impacted than others, the overall food tech market is recalibrating to a new normal after a year where post-money valuations were too high, and capital was still relatively cheap. In 2022, the rising cost of capital and pessimism about the economy has resulted in investors becoming more cautious, meaning new investments and follow-on rounds are harder to come by.

It also means investors are putting much more pressure on their existing portfolio companies to cut costs and get to profitability quickly. That can mean layoffs, bringing in professional manager types (as with NextBite), or exiting from new markets. For publicly traded companies like Doordash, which face the quarterly pressure of reporting to Wall Street, it means experiments that are not a part of their core business (like automated food kiosks) get dropped.

The question facing the food tech industry (and, let’s face it, all tech-adjacent industries) is whether things get worse before they get better. My guess is the answer is yes, as some startups that benefited from the abundance of capital over the last few years will have a harder time raising their next round and will have to work hard to lengthen their runways. In some cases, those runways will run out.

Despite all of this, I remain optimistic about the future of food tech. There are too many inefficiencies and problems with the current food system, and, because of this, innovative companies will always find opportunities to reinvent an industry. And much like we saw with the first dot-com downturn, those companies that find ways to survive in moments of austerity emerge stronger and built for long-term survival.

But before we get to the other side, we would all be wise to prepare ourselves for a rocky year or two.

Investor Look: 10 Trends to Watch in Ag + Food Tech in 2022

Food, ocean and agtech venture fund S2G Ventures released a report citing ten catalysts that will shape intersecting industries including agriculture, food manufacturing, nutrition and food retail in 2022. The report examines the trends that are driving the transition to a climate-smart, healthy food system.

S2G — investor in several food and agtech startups — looks at technology disruption in three major categories including agricultural innovation, supply chain disruption and personalized food and nutrition.

“The food transition is still in its infancy but is being propelled by seismic tailwinds: massive demographic change spurring new consumer demand, significant advancements in the biology, chemistry and physics of food production to create new choices and now capital markets anchored by ESG that want to fund high growth, disruptive companies,” commented Sanjeev Krishnan, S2G Ventures Managing Director and Chief Investment Officer.

Farmers in the US are facing new challenges every day from nutrient-challenged soil to lack of access to capital. The S2G report describes the ways that innovation in fintech, robotics and biotech along with an increase in socially and environmentally conscious investing (ESG) will lead to the “fourth industrial revolution” in farms across the country.

The drivers of innovation in farming include:

  • Robots will increase efficiency while reducing labor needs across the food system.
  • The rise of ESG will help to digitize the farm.
  • Fintech will transform opportunities in agriculture, just as it did for the student loan and mortgage markets.
  • RNA technology that saved lives during Covid-19 will be applied to farms to save soils.

Supply chain disruptions experienced over the past two years have catalyzed both governmental institutions NGOs and the private sectors to fund and drive innovation in biotech, cellular agriculture and food waste solutions. The result according to S2G Ventures will be supply chains that are more nimble, sustainable, localized and less wasteful.

Innovations that will revolutionize supply chains include:

  • Fermentation will power the next generation of alternative protein products.
  • Cellular protein will provide consumers around the world with safe, sustainable food.
  • Adoption of food waste solutions will be recognized as both a good business practice and an essential tool for feeding the world.

Even prior to the pandemic, consumers were demonstrating a desire for better food choices and a renewed focus on ways to personalize their nutrition and healthcare. To answer this demand, food and nutrition startups are using cutting-edge bio and food science as well as AI and machine learning to develop nutrient-dense, functional and personalized food products.

Personalized food & nutrition catalysts include:

  • AI and machine learning platforms will unlock greater understanding of and use cases for plants and fungi.
  • Food will become central to the effort to prevent chronic disease and improve health outcomes.
  • Food brands and grocers will have to “personalize or perish.”

To dig into more details on areas to watch in food and agtech this year, download the full report from S2G Ventures.

The Week in Food Tech Funding: Double (Alt) Cheese Funding & Big Money for Misfits

Fall is upon us in the Pacific Northwest, and alongside autumn colors and windy weather is lots and lots of food tech venture capital. This week’s funding news includes not one but two alt-mozzarella startups, a monster round for ugly produce online retailer Misfits Market, and three pieces of food robot funding news.

On to it:

Plant-Based Food

Sophie’s Kitchen – $5.6 Million: Sophie’s Kitchen has raised $5.6 million to fund the growth of its plant-based seafood lineup of products. The company, founded in 2010, offers a line of alt-seafood products, including crab cakes, shrimp, salmon, and tuna. Billy Goat Brands led the round, a Canadian venture fund focused on sustainability. Sophie’s Kitchen products can currently be found at Walmart, Sprouts, and Wegmans. The funding continues the momentum for the plant-based seafood category, which saw $116 million in funding in the first half of 2021 (compared to $26 million for the whole of 2020).

Growthwell – $22 Million: Singapore-based plant-based seafood and chicken maker Growthwell has raised a $22 million Series A led by Creadev. The company, which raised $8 million last year, “owns a portfolio of alternative protein companies aimed at Southeast Asian consumers, including OKK (plant-based meat), Su Xian Zi (vegan mutton), and gomama (ready to eat dishes made from plants).” They also sell a chickpea protein powder called ChickP for use in meat and dairy alternatives.

NUMU Food Group: Plant-based cheese startup NUMU has raised early in September. The amount of the funding was undisclosed. The company makes plant-based mozzarella from potato starch, soybeans, and coconut oil. Started a former DJ named Gunars Elmuts, NUMU sells its cheese to food service providers in shreds and blocks.

Precision Fermentation

Formo – $50 Million: Berlin-based Formo announced it had raised $50 million in Series A funding. The investment in the maker of animal-free cheese was led by EQT Ventures, with Elevat3 Capital and Lowercarbon Capital. Formo uses a precision fermentation process to make animal-free dairy cheese with animal identical proteins. The company plans to use the funding to “With the resulting increase in R&D capacity, Formo intends to expand its product portfolio to represent a wide variety of European dairy specialties such as mozzarella and ricotta, with techniques designed in collaboration with artisan cheesemakers.“

Food Robots

Pudu Robotics – $78 Million: China-based Pudu Robotics announced this week it had raised a $78 million C2 found of financing, matching the same dollar amount for its May C1 funding round. In total, the company has raised $156 million in Series C financing. The company makes a few different types of bots, including a front-of-house bot called the Bellabot, a cleaning bot, and two models of delivery bots.

Keenon Robotics – $200 Million: Another China-based robotics startup Keenon Robotics has raised an impressive round with its $200 million Series D. Its round was led by Softbank. Like Pudu Robotics, Keenon also makes food delivery and front-of-house food service bots and robots for hospitals.

Daxbot – $211 Thousand Crowdfunding: This week, Daxbot, a maker of sidewalk food delivery robots, launched its equity crowdfunding raise. Like many food robot startups, Daxbot is using StartEngine for its raise, and the company has already (as of this writing) raised $211 thousand from 136 investors. Today the company’s robots are being used for food delivery in Philomath, Oregon.

Online Grocery

Misfits Market – $225M Series C-1: Online grocer Misfits Market announced it had raised almost a quarter billion in new funding via a Series C-1 round. It’s a quick turnaround for more capital for the sustainability-focused online grocer that works with farmers and food producers to save ugly produce and food that otherwise would go into the compost bin; the company raised a $200 million Series C in April. Misfits Market joins fellow ugly food retailer Imperfect Foods as one of the companies that have tapped investor interest in the food waste space.

Smart Vending

Foodles – €31 million: Smart corporate food vending/catering startup Foodles has raised a €31 million Series B round from InfraVia Growth and Bpifrance via its Large Venture fund, and follow on rounds from existing investors, Creadev, DN Capital, and Adelie. The French company offers connected fridges, which it calls canteens that it supplies with food. According to the company, each fridge can provide food to up to 59 employees. The company hopes to disrupt a European contract catering market worth 240 billion euros.

Food Supply Chain Software

Grubmarket – $120 Million: Grubmarket, a provider of software and services to enable food producers, has raised a $120 million Series E round. The company’s software enables food producers and distributors to manage inventory, pricing, customer relations, and other company-related operations. The company’s announced hinted in the announcement that they will likely expand from just software into robotics in the future: “GrubMarket will likely also start to explore connected hardware to help those customers, too: robotics for picking and moving items” related to those activities managed by its supply chain oriented software.

Restaurant Tech

SpotOn – $300 Million: Payments software startup SpotOn announced this week it has raised a $300 million Series E to help finance the acquisition of Appetize, a mobile and digital payments startup focused on sports and entertainment venues, amusement parks, and zoos. Mega-VC Andreessen Horowitz led the deal (as they did SpotOn’s last round). A16z’s eagerness to inject more capital into SpotOn probably has a lot to do with the company’s tripling of revenue over the past 18 months. SpotOn, which has traditionally focused on SMBs (the segment of the restaurant space that has been the most aggressive in modernizing its tech stack during the pandemic), will now be able to sell into the enterprise market with the newly acquired Appetize.